Economic Illiteracy Can Destroy A Nation

By Spencer Fernando, Exclusive to the National Citizens Coalition

By now, whatever little we expect of the Liberal government is expecting too much.

Years ago, they were warned by many people – including Pierre Poilievre, long before he became the Leader of the Official Opposition – that high taxes, extended deficit spending, and the money-printing that enabled that deficit spending would erode the purchasing power of Canadians resulting in higher inflation.

Those concerns were dismissed outright by the Liberal government. 

Justin Trudeau infamously said the Canadian government “took on debt so Canadians wouldn’t have to.”

NDP Leader Jagmeet Singh demanded even more spending and thus even higher deficits.

The passage of time has revealed who was right and who was wrong about where this would all lead.

Inflation is rampant, and it just rose for the second time since Freeland’s ‘victory lap’ where she prematurely declared the battle against inflation won.

Our standard of living is in decline, with per-capita GDP falling. Unlike most peer nations, we are still behind the pre-pandemic per capita GDP level.

Our economy is only ‘growing’ due to a surging population, a situation wherein a growing number of Canadian financial institutions and business groups are warning is unsustainable.

The quality of nearly everything is degrading, with rampant violent crime spreading in major cities, public services crumbling, drug overdoses soaring, and the ‘Canadian Dream’ looking more and more like a nightmare to many Canadians.

And this isn’t just a short-term slump. Canada is projected to be the worst performer among OECD countries this decade in terms of per-capita GDP growth.

We are also projected to be the worst performer between 2030 and 2060.

All told, there’s no denying that the economic policies of the Liberals and NDP have failed.

However, there are two possible – and very different – responses to that failure:

Double-down or change course.

Changing course is obviously what Pierre Poilievre and the Conservatives are offering. And they are leading in the polls.

Unfortunately, the Liberals and NDP are still in power.

And if they choose to double-down – which is exactly what they are doing – the damage to Canada can and will escalate over the next two years.

Now, you may wonder why doubling-down is even an option, and why any Canadian would still support the Liberals/NDP doubling-down on policies that have failed.

The answer is that economic illiteracy has become Justin Trudeau and Jagmeet Singh’s greatest ally.

Consider the recent effort by the Liberal government to browbeat the grocery chains into ‘lowering prices.’

The government is talking tough and trying to put all the blame for high food prices on grocery stores.

The government is doing so knowing that grocery stores are not to blame for high food prices.

They know grocery stores have slim profit margins.

And they know that grocery stores are not ‘gouging’ Canadians or engaging in ‘greedflation.’

In fact, even the Bank of Canada has dismantled the false narrative surrounding grocery prices. Here’s an excerpt from a BoC paper on the issue:

“The evolution of markups and inflation does not align with the explanation that the recent episode of inflation was fuelled by firms leveraging their market power to raise markups and prices. Rather, the data can be understood in the context of economic theory about firms’ expectations and their price-setting behaviour. That is, the dynamics of markups, costs and inflation are consistent with an explanation that firms increased their prices (and, therefore, markups) in anticipation of future increases in both their prices and their marginal costs. This behaviour reflects their desire to smooth price increases over time rather than abruptly raising prices when higher prices and marginal costs are realized. 

As the economy began to reopen in 2021, firms started to increase prices in anticipation of the growing demand and the expected increase in their marginal costs associated with meeting that demand. This forward-looking behaviour meant that inflation started to rise in 2021 and coincided with markup growth fuelled by firms’ raising prices above current costs—a foreshadowing of the subsequent rise in prices and costs. By 2022, increases in costs caught up to growing demand, and growth in markups declined and became negative once growth in costs surpassed growth in sales. These dynamics in inflation and markups are consistent with the price-setting behaviour of forward-looking firms.”

What this means is that both the Liberals and NDP are lying, and know they are lying.

Yet, they do it anyway.

Remember, the government has no authority to demand grocery stores lower prices.

The grocery stores are private companies. They get to set the prices they deem appropriate. Grocery stores have an obvious interest in not making food too expensive – which would drive down sales – while also needing to make a profit. Hence, they have small profit margins, and their total profits are ‘large’ only due to the large volume of sales.

Ignoring this and trying to blame the private sector for the consequences of inflation is the kind of socialistic, ignorant populism we see in countries like Venezuela.

It has failed dramatically everywhere it has been tried.

Yet, ideas like price controls, government-controlled food distribution, and attacks on the private sector keep rearing their ugly head.

This is only possible because many people – including many within the government itself – remain ignorant of basic economic reality. People often demand the government spend and spend and spend, borrowing heavily to do so, and then demand to be exempted from the consequences of that spending. Many people think actual value and wealth are magically generated by printing money and are shocked to discover that more money doesn’t generate more goods, but instead makes each unit of money less valuable than before.

But rather than seek to educate and inform, governments often pander to this ignorance, and propose ‘fixes’ that make things far worse.

As we have seen in countries like Venezuela, when governments embrace socialistic thinking and pander to economic illiteracy, countries can be ruined.

It can cause a destructive cycle, where ignorant demands for government intervention further destabilizes the economy, which leads to more ignorant demands for government intervention, which further destabilizes the economy, and on and on.

Sadly, some are so ignorant and ill-informed that they only wake up when the economy of their nation has been destroyed.

Now, Canada still has the chance to reverse course before we get to that point, but our time is not unlimited.

The fact is that Canada has a government intervention problem, so we can’t ‘fix’ inflation and high food prices with more government intervention.

The government spends too much, borrows too much, and taxes too much.

Thus, to bring down inflation, and bring down food prices, we need the government to step back and leave more and more of the economy to the private sector.

Ultimately, if we want to avoid a total economic disaster, we need more freedom and less government.

Click to join the mailing list so you can receive his exclusive weekly column for NCC supporters right to your inbox.